China’s car dealers struggle with US$20 billion in losses amid price war
Weak consumer demand and unsold inventories are piling on the losses for dealerships across the country, industry association says
The widespread losses have caused dealerships cash flow problems as they have been saddled with large unsold inventories, leaving them in a situation where survival is becoming increasingly difficult, the China Automobile Dealers Association (CADA) said in a report on Monday.
The association said it has submitted the report to relevant authorities to draw attention to the difficulties facing the industry and to get financial assistance. It did not name the authorities.
“Lacklustre consumption and pressure from wholesalers have kept dealer inventories high, [but] to ease financial strain and reduce borrowing costs, dealers are being forced to sell vehicles at reduced prices,” CADA said. “The ongoing price war has worsened the issue of dealers selling at a loss, where the more cars they sell, the greater their losses.”
Dealerships are struggling to meet their financial obligations, and the time they have to maintain sufficient working capital has been compressed to its absolute limit, the report said.
Such heated competition has reduced the dealers’ cost of goods profit margin to as much as negative 22.8 per cent from January to August, widening 10.7 percentage points from the same period last year. The overall discount for new cars was 17.4 per cent in August, according to the association.
